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Xcel lays out natural-gas conversion plan for metro area

Xcel Energy plans to spend $1.3 billion over 12 years to convert Denver-area power plants from coal to natural gas to meet a state mandate to reduce pollution around the Front Range.

The proposal from the state's largest utility, which still faces months of public input at the Colorado Public Utilities Commission, would phase out coal-fired generators in Denver and Boulder and retool most units to run on cleaner natural gas. Other plants near Brush and Hayden would still burn coal but would be upgraded to reduce emissions.

Xcel estimates the cost of the changes will add an average of 1 percent to the typical ratepayer's electricity bill over the next 10 years, an improvement over the company's initial forecast of 4 percent to 6 percent.

"It's the lowest cost long term . . . and it's also the lowest cost in the near term," said Karen Hyde, Xcel's vice president for rates and regulatory affairs.

However, coal-mining interests and independent power producers, which both stand to lose business under the plan, said consumers would be at risk of higher costs and price volatility.

By 2017, the power plants under consideration would emit 75 percent less nitrogen-oxide compounds, a key requirement in the Clean Air-Clean Jobs Act signed by Gov. Bill Ritter on April 19. By 2022, Xcel said, it would further reduce those emissions by 89 percent from 2008 levels.

Environmental groups praised the program as another example of Colorado's leading role in the nationwide movement to promote cleaner energy.

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"I'm encouraged by what's been filed," said John Nielsen, energy program director for Boulder-based environmental research firm Western Resource Advocates. "It's definitely a serious attempt to look at pollution in the state."

Colorado Oil & Gas Association president Tisha Conoly Schuller likewise called the proposal good news for the state economy, though gas producers said they might press Xcel to move even faster when the Public Utilities Commission accepts testimony on the changes next month.

"They're proposing a timeline that we think might be able to be accelerated," she said of Xcel.

Overall, Schuller said the proposal is "a good step in the right direction."

Anadarko Petroleum Corp. won a 10-year contract to supply fuel for the planned natural-gas turbines, said Scott Moore, vice president of gas marketing for Anadarko. Ensuring long-term contracts was another major provision of the act designed to ensure Xcel could afford a reliable supply.

In a setback to independent power producers, Xcel's plan did not add any third-party natural-gas power plants to its portfolio, arguing that retrofitting coal-fired plants will provide better reliability. Independent producers said the utility's decision to own all of its added natural-gas capacity allows it to reap greater profits under state regulations.

"What they're really doing is trying to construct an opportunity for them to make more money for their shareholders," said Nick Muller, executive director of the Colorado Independent Energy Association.

Hyde said Xcel considered five independent power producers whose contracts with the company were set to expire and found "they all added cost to the plan that we proposed."

Xcel will start retrofitting its Denver-based Cherokee plant next year, converting 717 megawatts of generation to natural gas. The smaller Arapahoe plant would switch one unit to natural gas and another to a system designed to improve grid reliability, both by the end of 2013.

Scrubbers and other technologies would reduce haze and other pollutants from the Pawnee plant near Brush and the Hayden plant by 2014 and 2016, respectively. In Boulder, the last remaining coal-fired unit at the Valmont plant would power down by the end of 2017, leaving two already-built oil and natural-gas generators.

If approved, the utility will increase rates to pay for the renovations starting Jan. 1.

Ray Gifford, an attorney representing coal miner Peabody Energy, said retrofitting the Denver and Boulder plants to keep running on coal would have saved ratepayers more money in the long run by preserving a fuel that is less vulnerable to price shocks. Long-term natural-gas contracts remain mostly untested, he said.

"You listen to the gas guys, and they say that they've squeezed the volatility out of the market," Gifford said. "If they're really right, we'll see."

The Public Utilities Commission will review input from government, industry and citizens groups this fall before ruling on Xcel's plan Dec. 15.

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